The Agribusiness World Today

Ken Shwedel
Investigador de Agronegocios de Rabobank, México
February, 23-27, 2009

The World

A highbrow chain selling a lowbrow product? The word is out that Starbucks will be test marketing an instant coffee. According to the company the product is not a reaction to the changing fortunes of the company nor is it a strategy to respond to the market in the hard economic times. Rather, they say that they have been working on the development of the instant coffee for some 20 years in order to assure that it “replicates the taste of Starbucks coffee”. To a certain extent the instant coffee seems to be an extension of Starbucks’ strategy of offering more product choices as well as moving to lower price points. The instant coffee will be priced below the regular Starbucks’ coffee” giving a customer an opportunity to experience the brand at a lower price". Initally, the coffee, sold under the name Via, will most likely be sold only in Starbucks outlets. What is interesting is that analysts are almost unanimously critical of the decision. Their criticism centers around the impact that an instant coffee will have on the Starbucks’ brand message. No matter how good or how exclusively it is marketed, instant coffees have a negative stigma among coffee drinkers who consider themselves connoisseurs. What this suggests is that even if they are successful in penetrating the global US17 billion instant coffee markets, they will most likely have to rethink the brand positioning. If they don’t, the run the risk of creating too much confusion among consumers.

Retailers adjusting to changing shopping patterns in Spain: With the changing economic environment consumers are altering the way they shop. Similar to consumers in other countries, Spaniards are “looking harder than ever for value, visiting more stores but purchasing fewer items when they go.” This is forcing retailers to rethink their strategies. Mercadona, for example, is looking to cut costs by reducing the number of SKU’s. At the same time they are reducing the price on a number of products by around ten percent. Erkosi, the country’s largest supermarket chain, seeing that consumers are buying more private labels, is emphasizing their own store brands. Other chains are following similar strategies: “Consum, based in Valencia, plans to expand its private label ranges” looking for private labels to reach 20 percent of their total product offerings. They also plan to lower prices on a number of products by ten percent. Even El Corte Ingles is getting into the act. They are coming out with their own low-end food line Aliada. Right now they are only planning on 200 items, but may eventually expand the number of products.

Mexico

What, we worry? That is what Wal-Mart, apparently, is saying. The retailer announced that they will invest MX$11.8 billion pesos this year. That is a 4 percent increase over 2008, which of course is a contraction in both nominal and dollar terms. Nevertheless, their investment strategy is focusing on their Bodega format, which targets lower end consumers. They plan to open 225 Bodegas out of a total of 252 new units, which will contribute to a ten percent increase in floor space.